Trading systems are programs that take the entire scope of available markets and price data and attempt to predict exactly where the market will go next so that you can trade accordingly. The markets themselves are far more complex than the simple computer models which traders rely on to make their decisions. Markets are rife with variables which can't be predicted, like volatility and intraday trading. It's impossible to accurately determine what the future price of a particular asset will be in any given situation. Trading systems eliminate any guesswork and guarantee that your trades are based entirely on the most accurate information possible.
There are two main types of trading systems, discretionary and algorithmic. Adgorithmic trading systems are designed to pick the right trades based on mathematical algorithms. This eliminates any possibility for outside factors or emotions creeping into your trades. These are typically more complicated and more prone to failures than more straightforward discretionary trading systems.
Most experienced traders use one or a combination of these types of trading systems. Many traders utilize more than one type of software package. However, the more experience a trader has with trading systems, the more likely he is to reach a point at which he only needs one type of software package to be effective. The reason is that each type of program has a slightly different emphasis and requires a certain amount of discretion and analytical skills to be successful using it.
The two major categories of trading systems are discretionary and algorithmic. A discretionary strategy simply takes the best known trends from the market and makes an educated prediction as to where the market will go next. The trader would not use a trend following strategy in this scenario because there isn't a known exit strategy. With a discretionary strategy, the trader relies on his own intuition or common sense to decide when to enter and exit the market. Algorithmic trading systems are designed for all time periods and all markets. The algorithms work to constantly evaluate real-time market data and formulate an algorithmically intelligent strategy based on the evaluation of the data.
Each system must have a risk management system built into it in order to function properly. All traders must be aware of their risk factors in order to make smart risk management decisions. In this way, all traders will have a common set of principles to follow and avoid common pitfalls. While most automated trading systems may not offer solid risk management guidelines, they do offer some risk management tools to help in creating effective risk controls within the system.
Automated trading systems can make a good first impression in the market by providing clear sound trading rules and indicators. These systems should have clear and precise entry and exit criteria for both buy and sell transactions. The criteria used by the trader for buy or sell should be set up so that the entry and exit points of the transaction are controlled specifically by the system and are not influenced by emotions, other than greed, which is a very dangerous emotion. Buy and sell orders should be entered and exited only by the trader or his designated broker.
Many automated trading systems today include a number of different strategies for use by the trader. These strategies can be either long or short term based and can be easily modified as each situation changes in the markets. Long term strategies can be implemented if you are looking for the long term success of your investment. Short term strategies can be implemented when you are just testing the waters in the markets.
The trader can choose from a variety of trading systems including mechanical trading systems and auto trading system would be the best option for the beginning trader. All traders should educate themselves on the various options they have available to them to better the chances of success. It is a good idea for the trader to read as much information as he can on the topic of automated trading systems before deciding which option would be best suited for their needs.